Changes to TUPE in 2014
A number of amendments have been made to the UK’s Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). Therefore, this is an excellent opportunity to reconsider the circumstances in which TUPE will operate and the issues that you need to consider when it does. This article sets out an overview of “new” TUPE; however we would recommend that you always take advice on its application and your obligations.
What is TUPE?
TUPE serves to protect employees’ and their rights in the UK when their employment transfers to a new employer. TUPE implements the EU’s Acquired Rights Directive which applies to all EU Member States; therefore whilst the information set out in this article applies to the UK, similar provisions will broadly apply across the EU with tweaks made by Member States on a local level.
When does TUPE apply?
TUPE will operate in two circumstances:
When there is a business transfer pursuant to which there is a transfer of an economic entity based in the UK from one company to another as a going concern.
Example – Company A produces mobile computer games. Company B also produces computer games. It has three separate divisions focussed on the production of (i) games for consuls; (ii) web-based online games; and (iii) mobile games. Company A is going to acquire Company B’s mobile game division. TUPE would therefore apply to transfer the employees assigned to Company B’s mobile game business to Company A. Therefore Company A will become the new employer of the transferring employees.
When there is a service provisions change pursuant to which a company outsources the provision of a service to a contractor, reassigns the outsourced services to another provider or brings the outsourced service back in-house.
Example – Company C is a marketing company, and Company D is a marketing company. Company C has lost is account with Client XYZ and instead Company D will be carrying out the marketing activities for Client XYZ going forward. TUPE will only apply to transfer the employment of the marketing employees from Company C to Company D provided that marketing service to be provided by Company D will be “fundamentally or essentially” the same to that carried out by Company C. If it is, Company D will become the new employer of the transferring employees.
The requirement that the transferring services remain “fundamentally or essentially” the same after the transfer date may increase the scope for arguing that TUPE does not apply where significant changes are to be made to the services by the new provider, or where there is fragmentation of the services being transferred.
TUPE will not apply to share sales / purchases because in these circumstances the identity of the employer will remain unchanged. Therefore, employees’ employment contracts will simply remain in force.
What is the effect of TUPE applying and what other changes have been made?
There are a number of consequences of TUPE applying, including those set out below. It is important for businesses to limit the risks and liabilities arising as a result of TUPE so far as possible under the terms of its commercial agreement.
1. The current employer must provide certain information known as “employee liability information” to the new employer prior to the transfer. Essentially this information relates to the basic terms and conditions of employment of the transferring employees and any claims, grievances or disciplinary issues relating to them. Unless the commercial agreement provides for more time, this information only needs be provided 14 days before the transfer date; however from 30 April 2014 this will increase to 28 days before the transfer date.
There is an obligation on the parties to inform and consult with “appropriate representatives” of their own affected employees about the transfer in “good time” before the transfer takes place:
The current employer will need to inform and consult with the transferring employees and any other of its employees that would be affected by the transfer (e.g. if their responsibilities may change). The new employer would need to inform and consult with its own employees if they would be affected by its purchase of the business/services.
If there are no “appropriate representatives” in place an election process will need to be carried out to appoint them. However, from July 31 2014, where appropriate representatives are not already in place, employers with less than 10 employees can directly inform and consult with their affected employees rather than carry out the election process – which will cut down on time.
As part of the information and consultation process, a new employer has to fully inform the current employer of all “measures” it may take in relation to the transferring employees (such as any changes to terms, any redundancies etc).
Failure to comply with the obligation to inform and consult is still punishable by a protective award which is equivalent to 13 weeks’ gross pay per affected employee. This liability is joint and several between the parties. Therefore, each party may want indemnities from the other that they will not be liable for the other’s failings.
On the transfer date, the employment of anyone assigned to the business or service that is transferring will automatically transfer to the new employer. Each employee will be deemed by their new employer to have commenced employment on the date on which they started employment with their old employer. In other words, continuity of service is preserved.
The new employer will inherit all rights, liabilities and obligations in relation to the transferring employees, including any actual or potential claims. For example, if there was litigation between the old employer and a transferring employee then the new employer will have to step into the shoes of the old employer and defend the proceedings. The new employer will not want to be liable for anything in connection with the period before the transfer and so indemnities to that effect are key.
If an employee is dismissed (either before or after the transfer date) because of the transfer or in connection with the transfer then their dismissal can be automatically unfair. Compensation for unfair dismissal is normally up to one year’s pay so it is important to minimise risk and get indemnities if possible.
The employees will transfer on their existing terms and conditions of employment. There are limited circumstances in which the new employer will be able to amend them which may mean immediately harmonising terms can be tricky.
Previously if the new employer proposed to make transferring employees redundant it would have to wait until after the transfer date to consult with the transferring employees about this. TUPE has been amended to allow the new employer to consult with the transferring employees about this situation before the transfer date, provided the current employer agrees.
What actions should you take in relation to TUPE?
If you are either buying or selling a business in the UK, or are involved in the change of provision of a service (whether as client or contractor) then we would recommend that you take advice on the application of TUPE. However, on a practical level you should consider the following points:
1. Does TUPE apply? There are lots of legal tests to determine whether TUPE applies and, if so, who to. Therefore, it is possible that a business could argue there is not a business transfer or service provision change. Alternatively, even if there is, it is possible that the number of employees who should transfer could be reduced.
2. Ensure that you have the appropriate contractual documentation and protections in place. For example, as a purchaser of a business you will want to ensure that you have conducted due diligence and obtained indemnities in respect of employment liabilities arising pre-transfer and any failure of the other party to comply with their TUPE obligations. As a seller of a business you will want indemnities for all post transfer events (including redundancies) and indemnities in case you have not been provided with all information regarding any measures the new employer will take.
Make sure you are aware of your duties to inform and consult with employees who will be affected by the transfer.
Consider whether there will be any redundancies post-transfer. If so, this will trigger further information and consultation obligations and a failure to have a legitimate redundancy situation and follow a fair process could result in employment tribunal claims from dismissed employees. Consideration should also be given to starting the redundancy consultation process before the transfer date.
Consider whether there will be any requirement to change employees’ terms and conditions of employment post-transfer. This may be possible in some circumstances; however you should take legal advice to ensure that you have the necessary protections in place.